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The new Apple iPhone 5 is displayed Wednesday Sept. 12, 2012. (Eric Risberg/AP)
The new Apple iPhone 5 is displayed Wednesday Sept. 12, 2012. (Eric Risberg/AP)

Apple at the summit: The trouble with being No. 1 Add to ...

In just a few years, the technology industry’s most revolutionary company has become its most conventional.

The Apple Inc. that late CEO Steve Jobs set on a course of domination a decade ago had every reason to think in revolutionary, even dangerous, terms. Far from the world’s most valuable company, that Apple was a niche player, only a few years removed from a flirtation with bankruptcy. It could afford to bet the farm on products such as the iPod and iPhone – products that at first received mixed reviews in large part because nobody understood yet why they wanted them. Those bets, audacious as they were, paid off in ways even Mr. Jobs couldn’t have imagined.

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A decade later, and now boasting some of the most impressive profit margins in the technology industry, Apple has no choice but to play it safe. Gone are the days of groundbreaking, genre-redefining products. The company is now in the business of tweaking its products, echoing the transition of other technology titans. The new iPhone 5 hitting the market later this month is destined to be a best seller, despite lacking any major innovations.

Today, Apple is run by a numbers man. Tim Cook’s expertise is in the meticulous, unsexy work of maximizing profit, using tough contract terms and making incremental improvements to Apple’s product line.

Apple may be best known as a company that puts the customer experience first, but, increasingly, management’s focus is on the bottom line – best illustrated by the carefully calibrated timing of the iPhone 5 launch date.

The iPhone 5 begins shipping in key markets such as the U.S., Canada and the U.K. next Friday, and in 22 more countries a week later, positioning it perfectly for the holiday shopping season. But more significantly, that big global launch – one of the most aggressive in the company’s history – will come just before Apple’s fiscal year ends, meaning that all the millions of phones the company will ship in the first days of the iPhone 5 frenzy will show up in its next earnings results. In other words, the timing of the rollout isn’t random; it’s a calculated move to make sure the new phone results in as massive a quarterly profit as possible.

In order to squeeze out additional profit, Apple is imposing a new restriction on some of its carrier partners, prohibiting them from selling an iPhone 5 in their stores without also activating the phone. New activations automatically trigger a fee to Apple from the carriers, but also keep consumers from buying unactivated phones and then reselling them at a premium or shipping them to other countries.

Given how loyal and reliable Apple’s customer base is, it is a perfectly reasonable strategy that will almost certainly keep the company atop the industry – at least until someone else comes up with the next revolutionary product. In film terms, the Apple that brought the world the iPhone in 2007 was a maker of risky, unorthodox movies that went on to become blockbusters. The Apple of today makes sequels – movies that make a lot of money, but feel very familiar.

 

The Apple ecosystem

Less than 24 hours after Apple unveiled the iPhone 5 in San Francisco, Samsung Electronics Co. Ltd. issued a blunt press release.

Samsung’s statement came in the form of a contrast-and-compare chart showing the various differences between the new iPhone and Samsung’s own Galaxy S III smartphone – the iPhone’s most formidable competition in the marketplace today. The chart went through myriad criteria, such as screen size, processing power and battery life, and was intended to make the argument that, over all, the Galaxy S III was simply a better phone than the iPhone 5.

Samsung is, for the most part, correct, and Nokia Corp. and Research in Motion Ltd. will likely be able to make the same claim.

Of course, that would be a much bigger problem for Apple if the company were in the business of selling products. It’s not. What Apple sells is an ecosystem – an intertwined set of products and services that work together to fulfill a customer’s every need, from the online store where you buy the song to the MP3 player that lets you hear it. The iPhone 5 is but one animal in that ecosystem.

“While the new hardware may not quite stack up against other products expected in market, it is Apple’s ability to create stylish, desirable products attached to a rich set of services that it hopes can still set it apart to create differentiation,” David McQueen, principal analyst at Informa Telecoms & Media, said following the launch of the new phone.

That’s why, despite the more than 50 lawsuits it has launched against its South Korean rival, Apple’s biggest competitor isn’t Samsung. Instead, Apple’s long-term struggle for supremacy is against companies such as Google, Microsoft and Amazon – tech giants that are also trying to woo consumers with multiplatform solutions.

Just as Microsoft’s goal with the Xbox gaming system is to gain a foothold in living-room entertainment and get consumers to purchase media through the Xbox’s virtual store, Apple’s iPhone is designed in large part to convince customers to spend their entertainment money through other Apple services. For the most part, that strategy has worked wonders – Apple now boasts some 400 million active iTunes accounts, each one tied to a credit card number.

That’s why Apple has shied away from the kind of risk-taking that resulted in the original iPhone. To shake up the industry with another unexpected, revolutionary product would be to mess with a larger ecosystem of products that now drives a reliable and superlatively large revenue stream. It is now in Apple’s best interests to improve, not innovate.

 

The challenge of being No. 1

Of course, in the unpredictable world of high tech, there are risks to being the incumbent. Apple need only look to the company it dethroned in the smartphone industry. For years, RIM dominated with its business-oriented BlackBerrys, and scoffed at Apple’s attempts to introduce smartphones to the everyday consumer. Today, the BlackBerry maker is suffering mightily for playing it safe.

The tech industry is also rife with examples of companies that became too comfortable and were unable to move into new industries. Microsoft, whose Windows operating system once relegated Apple to the sidelines in the desktop wars, was so well-established in that market that it arrived very late to the mobile party, even as more and more consumers ditched desktops for smartphones and tablets.

Now, as Apple occupies in the mobile world the same top spot Microsoft occupied in desktop software, there’s no guarantee it won’t fail to react quickly enough to the next big tech industry transition, whatever it may be.

The original iPhone overturned mobile industry norms, and was even more revolutionary because it came from a company that was not a traditional wireless player. It was the device to popularize touch-screen phones for the masses, and in the process caught RIM – the company that basically invented the smartphone – completely off guard. But with each iteration, the iPhone has become less revolutionary, as Apple settles into a broader strategy of refining existing products.

“Apple is in maintenance mode right now – it’s tweaking its successful model so it can continue to sell tens of millions of these devices,” says Kevin Restivo, a mobile device analyst with global research firm IDC. In Apple’s defence, nobody else in the smartphone industry is currently creating any kind of groundbreaking innovation. In fact, Apple is so convinced that its rivals are simply stealing its own innovations that it is currently taking most of those rivals to court.

And even if Apple is now a giant, calculated player interested in locking in customers to its own ecosystem, it has ultimately been successful for all the right reasons – simply put, people want to buy what the company makes. “If they were really going in the Big Brother direction, it would all be in the service of Apple and not in the service of the consumer,” Mr. Golvin says. “And that’s not in their DNA at all.”

 

Apple’s next battleground

But in Apple’s broader ecosystem strategy, which covers everything from book publishing to movie rentals, there are still plenty of industries other than smartphones left to disrupt. The problem is, disruption comes with downsides.

Consider television, a necessary medium for Apple’s overall media strategy. Despite its disruptive influence in the music and mobile industries, Apple has not made a noticeable dent in TV, even after several attempts. Forrester Research analyst Charles Golvin says Mr. Cook will be in for withering criticism if Apple winds up to swing at the giants of TV again and meets with anything less than blockbuster success.

He also notes that the iPhone 5 lacks near field communication, or NFC – the wireless technology that is key to swiping your smartphone like a credit card. Although Mr. Golvin says Apple wasn’t that afraid of the music industry, putting NFC on the iPhone 5 could have sent alarming signals to the behemoths of global finance. But the very fact that a technology company that barely made a dent in the technology industry a decade ago can now pose a threat to traditional commerce illustrates just how powerful Apple has become. Indeed, the image of Apple as any kind of underdog – as it once presented itself in the famous “1984” commercial – is now inconsistent with the fact that Apple is now the world’s most valuable corporation.

In October, 2010, a gleeful Steve Jobs crowed about the damage Apple was doing to Canada’s BlackBerry maker. “We’ve now passed RIM and I don’t see them catching up,” he said. “We’re out to win this one.”

Since that time, Apple, with its new-found heft, has pursued its rivals in the courts without mercy. Even Apple co-founder Steve Wozniak, in a recent interview with Bloomberg, was dismayed at the company’s recent patent victory over Samsung in a California court.

“I hate it,” Mr. Wozniak said. “I don’t think the decision of California will hold. And I don’t agree with it. ... I don’t really call that innovative.”

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